It may be owned by public sector body Scottish Water but, make no mistake, in every other way Business Stream is run like any privately-held company, as chief executive Jo Dow tells Peter Ranscombe.
History seems to have a habit of repeating itself for Jo Dow. Back in 1998, she joined what was then Scottish Hydro-Electric on the eve of its merger with Southern Electric, which came as the industry stood on the cusp of deregulation.
Four years later, she moved to Scottish Water, the newly-created public sector agency formed from the merger of the previous three regional water boards, putting her in one of the hot seats when Scotland became the world’s first deregulated water market in 2008.
Fast-forward to 2016 and the chief executive of Business Stream is overseeing the acquisition of Southern Water’s non-domestic arm and is preparing for 1 April, 2017, when the English commercial water market is due to be opened to competition.
“There’s a theme building here,” smiles Dow, 42, who grew up on Shetland and still retains a soft island lilt to her voice. “It does feel a bit like I’ve been here before.”
Dow speaks with great enthusiasm – and perhaps even a bit of affection – for Business Stream, but perhaps that’s not surprising given her career history. She was part of a four-person team that was responsible for creating the organisation in 2007 in the run-up to deregulation and she was the first employee on its payroll, rising through the ranks from financial controller to finance director and then chief executive in October 2014.
“I wanted to become an accountant because I was fascinated by numbers, which sounds incredibly sad and boring,” Dow laughs. “When I joined this business, I never thought I’d become an expert in waste water treatment processes for turkey farmers, but I’m definitely there now – we have some interesting conversations about treating blood effluent and I think ‘This is not what I signed up for’,” she jokes.
So, how did an accountant become an expert in turkey effluent? Instead of following the well-trodden path of going through university and then completing her ‘articles’ or professional training, Dow opted for the direct-entry route, joining accountancy firm Turnbull Kemp & Co in Perth at the age of 17 and qualifying as a chartered certified accountant when she was still just 21.
From Turnbull Kemp – which was later taken over by larger rival Johnston Carmichael in 2004 – Dow joined Henderson Loggie’s Dundee office in 1996 as an audit manager. Auditing didn’t give her the same buzz as straight accounting though – she decided that she wanted to be involved in preparing the figures instead of simply checking them – and so she switched from practice into industry in 1998 with what is still known affectionately in the North of Scotland as the ‘hydro board’, before joining Scottish Water in 2002.
“My first big break was working as the finance lead for Scottish Water’s price review,” she explains. “That then gave me the opportunity to get involved in writing the first business plan for the retail subsidiary that eventually went onto become Business Stream.
“It was a world-first, so there was no blueprint to follow. It was a tremendous opportunity for me because it took me out of the comfort of being a finance specialist.
“When there are only four people setting up a company then you get exposed to all sorts of areas of the business. We had a very tight deadline set by the regulator ahead of deregulation, so it was high pressure but very rewarding.”
When the water market was opened to competition in 2008, suddenly companies, public-sector organisations and other non-domestic customers were given the choice from whom they could buy their water. Scottish Water remained as the wholesale provider – the owner and maintainer of the reservoirs, pipes and other infrastructure – and began supplying the wet stuff to a host of retailers.
Business Stream started out with a monopoly and only a handful of competitors; it still has a 50% share of the non-domestic market but now has around 20 rivals. The organisation has about 100,000 customers in Scotland and a similar number in the South-East of England following its deal with Southern Water.
“We’ve helped customers to save £133m from their bills in the past eight years – there aren’t many businesses that help their customers to use less of their core product,” says Dow. “That can be anything from simple things like fitting aerators to taps or what we call ‘hippos’ to toilets all the way through to massive engineering works.
The businesses we serve range from hairdressers on the high street that may just have a tap and a toilet through to massive industrial organisations and everything in between. When it comes to innovation, we pinch a lot of ideas from elsewhere – like a single consolidated bill for all a customer’s UK sites, which is what we used to do in the electricity industry – but when it comes to new technologies we specialise in waste water and effluence.”
Scottish Water is a regulated body and so has a default set of wholesale charges. The water retailers also have a default set of charges, which represent the maximum amounts for which they can bill their customers; competition arises as the retailers compete with lower prices, with clients typically paying a fixed charge for their water meter and then a price for each litre of water they use.
Business Stream had around 125 members of staff when it was created in 2007, with its headcount having since risen to around 250, compared to 3,800 at Scottish Water. Its most recent set of accounts showed that revenues fell from £364m in 2013-14 to £320m in 2014-15.
Conversations about structure and revenues inevitably lead onto questions about profit – or is that a surplus if it’s a publicly-owned company? “Profits – they’re most definitely profits,” Dow is adamant. “We see ourselves as a commercial organisation. I often forget that we are public-sector owned because we operate as a business. Business Stream was allocated funds when it was created and we’ve not had to draw down any further funds.”
Running the business using the profit it generates rather than the taxpayer’s pound seems fairly straightforward. But what’s the relationship between Scottish Water and Business Stream, with the former not only being the owner of the latter but also the wholesaler to its retailer?
“It’s quite odd,” admits Dow. “With a business like SSE, for example, you have a group company and then subsidiaries that sit underneath it.
“In Scottish Water that’s not the case. In effect, Scottish Water – the wholesale business – is our parent company. What sits between the two businesses is a holding company, with the snappy name of Scottish Water Business Stream Holdings Limited.
“Our board takes independent decisions about the future of Business Stream and Business Stream draws down finance from the holding company, but at a commercial rate of interest rather than a public-sector rate of interest.
The regulator wanted to create a level playing field – if new entrants couldn’t access funds at public-sector rates then neither should we. It’s a unique relationship, and it’s complicated, but it works.”
Business Stream is currently recruiting non-executive directors for its board and is using a competitive process and a head-hunter, in the same way as a privately-owned company. Although the board of the holding company could object to a nominee, that hasn’t happened yet, while the organisation also keeps civil servants advised on candidates.
There are some issues on which the two bodies can work together. Up and down the country, newspapers regularly get calls from disgruntled housebuilders and commercial property developers complaining about the slowness of Scottish Water connecting their projects to the mains. Housebuilders will interact directly with Scottish Water, while commercial property developers will deal with Business Stream.
“Even over the past two years, the average amount of time it takes to make a connection has dropped dramatically from six months to twelve days,” Dow points out. “That’s not to say it’s perfect, but improvements have been made.” When it comes to growth, Dow has her eye on opportunities South of the Border. At the moment, only English customers that use more than five megalitres of water a year – enough to fill two Olympic-sized swimming pools – can swap retailer and even then only for a single site and just for their water supply and not their waste water or trade effluent.
All that will change when the market is deregulated on 1 April, 2017 – the number of businesses that can switch will skyrocket from around 27,000 at present to around 1.2 million, with potential revenues of £2.5bn up for grabs. There are currently around 18 regional water wholesalers in England, some of which will choose to run their own retail arms but others that will focus simply on wholesaling, including Southern Water, which sold its non-domestic retail arm to Business Stream.
The value of the deal wasn’t disclosed at the time, so all eyes will be on Business Stream’s next set of accounts. Other businesses – such as Blairgowrie-based Castle Water, which was set up as a challenger in Scotland and which already has deals in place with Portsmouth Water and Thames Water – have positioned themselves so they’re ready for the starting gun to be fired. While the regulator North of the Border has separated Scottish Water as a wholesaler and Business Stream as a retailer – each with its own board and financing – Dow points out that the requirements aren’t the same in England, with laxer separation. One of her key concerns is whether the playing field will be level for new entrants.
“The opportunity in the English market is huge,” she adds. “It’s a chance for us to take the experience we’ve built-up over eight years in Scotland and use it in earnest.
“The number of customers that have already switched in England is only in the teens out of a potential 27,000. We’re one of the dominant players, in that we’ve switched most of those sites in the South, but we’ve been very selective about the types of customers that we’ve interacted with to-date because we viewed it as a learning experience, particularly the interaction with the different wholesalers, which all have different prices and levels of service.
“We’ve been careful about the sectors and the geographic locations that we’ve worked with. For example, for House of Fraser we supply its flagship store on Oxford Street in London and some of its other shops throughout England.”
NHS Salford is another high-profile customer south of the Border, alongside the roster of familiar Scottish names like The Gleneagles Hotel and the Landmark theme park at Carrbridge, near Aviemore.
Away from her day-job, Dow sits on the assurance group set up by the UK Government’s Department for Environment, Food & Rural Affairs – or DEFRA to its friends – to monitor market readiness for deregulation and on the customer forum launched by the water regulator in Scotland. Outside work, while she is a self-confessed ‘gym bunny’ and keen cyclist, most of her ‘spare’ time is taken up acting as ‘mum’s taxi service’ for her eight-year-old twins. With such a busy executive role, there’s no time for non-executive positions with other companies. Besides, Dow still has a professional score to settle.
“One of the issues we face is that, because the Scottish market is already deregulated, we have all of the English water companies competing up here and taking our customers, but we can’t reciprocate down South,” she smiles.
“I can’t wait for 2017 to come so we can get our own back.”
Our BQ Bulletin emails will land in your inbox at 7.30am, Monday to Friday, with a mix of the latest local business news, national news, and features to inspire you. Sign up here!
Click here to read our privacy statement